New theories for a more responsible financial sector

He has studied ethical funds, microcredit and ethical issues in people’s shopping at the groceries store. Now Joakim Sandberg is developing new theories on more responsible financial markets.

Joakim Sandberg

Associate Professor of Practical Philosophy

Wallenberg Academy Fellow 2014

Institution:
University of Gothenburg

Research field:
Moral philosophy, political philosophy, financial ethics

The threat of climate change, rising income inequalities, and a financial crisis that shook the world. In the public debate of these major issues, more and more people want the financial sector to come out of its isolation and take a stronger social responsibility.

Joakim Sandberg is a researcher in practical philosophy at the University of Gothenburg, and a Wallenberg Academy Fellow. He wants to examine the form this responsibility might take.

“Students at the business school still learn that everything is about maximizing profit, and that the role of trade and industry is to make money. But if we want the financial markets to accept greater social responsibility, this must be included right from the outset – at the theoretical stage,” Sandberg explains.

When he went to university he first studied philosophy. He soon reflected that he wouldn’t be able to get a job, so he changed to business studies. But he found it too boring and career-oriented. In the end, he combined the subjects and became a researcher in moral philosophy, political philosophy and economics.

“Researching in philosophy is an intellectual jigsaw puzzle. You map out a scenario: if people did this instead, what would happen then? Is a given rule governing our actions good, or does it have unwanted effects?”

Building theories and studying specific reforms

Recent decades have seen economic deregulation in many parts of the world. As Sandberg describes it, the financial markets have become ever more powerful, while at the same time being less accountable for their activities.

As an example, he mentions that there used to be two kinds of bank: savings banks, which offered services for normal savers; and investment banks, which took substantial risks with investors’ money. Now there are universal banks, which in practice take big risks with savers’ money. Banks have become highly influential, and should accept greater responsibility.

“The financial crisis forced people to realize that the banks had not in fact shouldered that responsibility. Now there is a global movement for change. We see our role in that movement to develop new theories,” Sandberg comments.

His research team is now formulating new theories for a more responsible financial sector, and will evaluate the potential consequences of the theories. They are also studying some more specific reforms that have been proposed, in order to determine whether they make theoretical sense. Focus is on analyzing the underlying arguments, and the principles on which they are based, to ascertain whether they are tenable.

One member of the team is studying the concept of “collective risk” – the idea that employees in the financial sector contribute to a greater risk within the system than they would do individually. Another researcher is examining the bonus systems employed by companies in the financial sector, and is seeking to develop fairer remuneration models. A third team member is analyzing the role of central banks in devising monetary policy for a stable financial system. A fourth is addressing the role played by owners of capital, i.e. the responsibility of private individuals who invest their money in pension policies and insurance funds.

Everyone in the team meets regularly for general discussions. Sandberg also wants to encourage his colleagues to establish contacts outside the academic world.

“This field – financial ethics – is not yet widely recognized. We want to be pioneers and develop it systematically. And of course, we also want to influence society,” Sandberg says.

Sandberg has acted as an advisor on environmental labeling of funds, worked with the Swedish Society for Nature Conservation, given lectures for fund managers and engaged in a dialogue with the minister for financial markets and consumer affairs on the impact of legislation on the financial markets.

“Being chosen as a Wallenberg Academy Fellow gives me security – time to develop my project and adopt a visionary approach. It’s also a privilege to receive funding to set up a research team. In philosophy and economics it’s unusual to work in a team. I like it – it’s a good thing to have seminars and learn from one another.”

Pro-social and anti-social at the same time

Sandberg likes the fact that practical philosophy combines what he calls the “pro-social” and “anti-social”. He has scope both for his political pathos and his “geeky side”. He has no siblings, and when he was small he liked being on his own, reading and reflecting. His parents encouraged his curiosity. Neither of them is involved in research or the financial sector.

“I think this gave me an advantage. I can try to understand the system from outside, and ask the necessary big questions.”

At university Sandberg soon found that he was more interested in the subjects he was studying than whether or not they would lead to a job. He found out later that searching for knowledge could be a full-time profession. When he began his research, he realized he had chosen a field that many people found fascinating. He now says it was pure luck. He focused on what he thought was interesting.

“What I like most about my life as a researcher is that I decide what I do, and when I do it – although this sometimes means I work too much. But I’m less happy with the fact that I can think more quickly than I can type. I sit there with loads of good ideas, but it takes such a long time to write them down. But that’s actually a good thing. Things happen when you write that don’t happen when you just think.”

Text Lisa Kirsebom
Translation Maxwell Arding
Photo Magnus Bergström